Select Committee on Treasury Minutes of Evidence


Examination of Witnesses (Questions 60 - 78)

WEDNESDAY 7 NOVEMBER 2001

MR PETER GERSHON AND MR BRYAN AVERY

Mr Plaskitt

  60. This is all about results in the longer run.
  (Mr Gershon) I am sorry; it is not. We have already illustrated the Vodafone deal which has generated significant improvements.

  61. When colleagues have asked you questions about how do we measure the results and can we measure them in numerical terms, you have discouraged us from thinking in those terms and have said, "Wait until the projects have come to fruition in two or three years"; yet, my understanding is that you have been given a target. It is £1 billion pounds by the end of 2002-03. Is that right?
  (Mr Gershon) Yes.

  62. How are you doing against that target?
  (Mr Avery) One of the early things we did was to devise a piece of methodology in order to assess how departments are progressing against the billion pounds. It is important to understand that the billion pound target is one which is delivered by departments' improvement in procurement, not by OGC spending that procurement money. OGCs role is to help improve the way that those projects and procurements are undertaken in departments. Our first task was to devise a methodology, which we did in close consultation with the NAO, and we published that guidance in November of last year. In the spring of this year, we undertook the first assessment of how we were progressing across government against that methodology and gathered the results in. They indicate that now we are firmly on track to meet the three year target of the billion pound value for money gain across central, civil government.

Mr Cousins

  63. How could you possibly know that on the basis of what Mr Gershon has just told us?
  (Mr Gershon) Because there are other things that we are doing that contribute to value for money gains. You asked a very specific question about the Gateway review. There is a whole raft of other things that we are doing that contribute to improved value for money.
  (Mr Avery) The Gateway review process was launched in February of this year and therefore, in terms of progress during the last fiscal year, it does not really play a role. The pilots were undertaken in the period up to February but the Gateway review process was launched in February this year. In terms of looking at the progress made in the 2000-01 financial year, Gateways do not really feature at all.

Mr Plaskitt

  64. I think you are telling the Committee you are confident that, by the end of 2002/3, the department will achieve the billion target in value for money savings.
  (Mr Gershon) Yes.

  65. Are you saying, Mr Gershon, that on top of that, further out, you anticipate further benefits as a result of Gateway projects coming through and the like to build on top of that?
  (Mr Gershon) Yes. Some of our activities which have medium term return will also be kicking into their full effect in that period. You are going to come on to e-procurement and much of what we are doing on e-procurement at the moment is about gaining knowledge and expertise and the real benefits of that will occur after March 2003 and should generate substantial value for money improvements in what I would describe as the second period of OGCs existence. We are starting to see a real benefit from things like the Gateway review.

  66. Can you quantify therefore what sort of savings you think we can be looking for from the departments three or four years further out, once we have got beyond the first billion? Have you an idea in your head of how much more there is to be saved as a result of smarter procurement?
  (Mr Avery) In terms of Gateway, we have already said that, three or four years out when we begin to see the results that Peter has been describing, we would expect to be seeing gains from Gateway project improvements of the order of £500 million in a year, when the Gateway is fully developed, fully on-stream and projects that are at an early stage today going through their gates come on stream and start to deliver better benefits at lower cost. That is one indicator.

Mr Cousins

  67. I am looking first at the UK on-line action plan which you are running in cooperation with the Office of the e-Envoy. The situation is that this project is now well behind. Why has that happened?
  (Mr Gershon) Let me tell you what our approach to e-procurement is. When I arrived at the Office of Government Commerce, I felt that there was in overall terms a love affair going on with the technology. Government was rushing too fast to embrace the technology and I was concerned that there was a real risk that we were about to write the next chapter in a book called "Government IT Disasters" because the issues around the successful adoption of e-procurement are not really about the technology; they are about how this very modern technology can be successfully integrated, sometimes with what are quite old, antiquated back office systems. There are issues again around culture and behaviour within departments. I could see no evidence that those issues were being addressed in the round, together with other issues like security and integrity of systems. There was a lot of hype in the supply side about what the technology could do. If you look at the track record of what has happened, the approach that we have taken is the right one because what we decided to do was to run some controlled pilots and not to have a headlong rush, not just to get experience of the technology but to understand what happens when you start to introduce that technology and try to use it successfully in a departmental environment. That will make government collectively a better informed customer, a more intelligent customer, better able to utilise these technologies successfully in the future. That is basically why we are going slower than the original plan.

  68. The original plan was only for pilots and those pilots were due to be completed in August 2001.
  (Mr Gershon) Yes, but if you take for example e-tendering it has taken us significantly longer than we anticipated to come up with a web based electronic tendering system that has the necessary levels of security and integrity that will satisfy the accreditation authorities. Despite all the claims of the industry about the systems, when we ran a competition for a pilot and worked our way through all the issues in conjunction with the relevant authorities, it has taken us significantly longer than originally anticipated to get to a point where we were confident we could even run a pilot. It is not difficult to issue an invitation to tender electronically but if you think about the issues for submitting tenders electronically into a highly secure environment that has presented much greater challenges than were originally anticipated. I am pleased to say we are now running the web based electronic tendering pilot. Yes, it is a lot later than we thought, but we have a system which we have some confidence in. We have to test that out with the pilots, with different forms of tendering, different types of suppliers, to gain knowledge and experience in order that we can then make a decision either to roll the pilot out or do we have to go back to the drawing board again and come up with a modified requirement in light of the pilot experience. There is a lot of talk these days about the use of auctions in the e-procurement environment. We, for example, have to test out in practical terms the extent to which the European Directives that govern the framework of public procurement are amenable and supportive of using these sorts of electronic techniques, although we will need to engage in due course, in the light of practical experience on the pilots, with the Commission and other countries in Europe about possible amendment to the Directives to make them more supportive of these techniques.

  69. Perhaps the Committee might welcome a little explanation of that point because it sounds interesting. Expenditure on the government procurement card, you have told us, is over 100 million so far and will reach 300 million by the end of 2002. Those figures are right, are they? Will they enable you to deliver the government electronic procurement process that is implied?
  (Mr Gershon) The card helps towards the government's objective about the percentage of low value transactions that should be handled by electronic means, but it is not the only way of dealing with that. It is an important contributor to that objective, but not the sole contributor.

  70. You have told us in your memorandum, which set out that the expenditure on this card was of the order I have just mentioned, that you have not achieved the throughput that you were expecting. You were expecting 90 per cent of low value transactions to be conducted and in fact it is just over half.
  (Mr Gershon) The card is only one contributor. In some departments, until they have modernised their financial and accounting systems, which some are doing now; others have plans to do it—that cannot be solely driven by the needs of low value, electronic procurement—they could never get anywhere near that 90 per cent number. Yes, they could use cards to cover certain types of transaction but they could not interface electronically, for example, with some of the other e-procurement systems that are in existence today. You referred to the Buying Agency which is now OGCbuying.solutions. The old Buying Agency call-off catalogue can be accessed electronically. You can order from it electronically and you can use the card, but unless they have the right systems in place, they cannot do that interface and use that electronic capability successfully. One of the things we have learned by the focus on the 90 per cent target is that it has flushed out some bottlenecks within departments that have to be addressed and are being addressed. Yes, the consequence of that has been the 90 per cent target was not achieved. It was only 50 per cent, but the good news is there is a much clearer understanding of what has to be done to get to 90 per cent. In some cases, it is quite fundamental in some departments and depends on the introduction of more modern back office systems to support e-procurement.

  71. How much would be saved when the 90 per cent target is achieved?
  (Mr Gershon) Getting to 50 per cent, we estimated, had saved about 100 million overall. If you worked on a pro rata basis, that would get you into the right sort of order.

  72. About 200 million?
  (Mr Gershon) Yes. I am trying to give you a ball park figure. I am not saying it has an accountant's accuracy about it, but there is no reason why what comes when you go from 50 to 90 per cent should not be of a similar order of magnitude that we had getting to 50 per cent.

  73. It took roughly a year from the Cabinet Office publishing the report reviewing IT procurement to the Prime Minister giving OGC responsibility for this on 24 April 2001. Who is now involved with this process? We have the Cabinet office, the Office of the e-Envoy and OGC. Who is really driving it?
  (Mr Gershon) Can I be clear? What you are referring to is responsibility for an improvement initiative called SPRITE which is to do with assessment of projects, which is the programme that was put in place to drive through the implementation of the recommendations which came out of the so-called McCartney review. Originally the owner of that overall programme was my colleague Andrew Pinder, the e-Envoy, who is part of the Cabinet Office. Andrew and I agreed, and then ministers and ultimately the Prime Minister agreed, that given the emphasis of the programme and the nature of the recommendations, it was more appropriate that overall ownership should transfer from him to me, because a lot of further recommendations had good synergy with some of the other things that we are doing in the Office of Government Commerce, like Gateway Reviews, something that we are trying to do on the skills agenda, management of key suppliers. There was more synergy on a going-forward basis with what we were trying to do in the OGC than there was with the e-Envoy who is trying to look at the big picture, he starts with the big picture and I start at the other end of the spectrum. The situation was such that, as I say, we agreed that overall I should have it, and ministers and the Prime Ministers agreed to the transfer. It does not mean that nothing happened in the period between the issuing of the McCartney review and the transfer to me.

  74. So what did happen?
  (Mr Gershon) The process began of implementing the recommendations that were in the review, which we have picked up, sustained and built momentum on.

  75. How do you report on all of this?
  (Mr Gershon) In terms of the overall performance on SPRITE, I report back to the e-Envoy and can answer as well to my own minister, and periodically my supervisory body now also receives updates on progress with SPRITE and other important improvement initiatives.

  76. So the line of political accountability is still through to the Cabinet Office?
  (Mr Gershon) Because it is part of the overall e-government agenda.

Kali Mountford

  77. Can I turn to small and medium size enterprises and their relationship with government procurement in particular. I am trying to wrap up a few questions into one, given the time. How does your responsibility in this area, if you have one, link with the DTI's responsibilities for small and medium size enterprises? Do you think there is more that we could be doing to aid SMEs build a relationship with Government and fit into the procurement process?
  (Mr Gershon) The simple answer to your last question is yes. In terms of everything we have done to date regarding SMEs, there is, for example, the guide we issued about tendering for government contracts. That was done jointly between the DTI Small Business Service and the OGC. Supported by the Small Business Service, we set about changing the guidance about evaluating suppliers' financial capability, so that young SMEs have a much better chance of being able to bid for government business. We changed the guidance about the limit of responsibility in contracts, again so that SMEs are not faced with trying to deal with default guidance which basically said there should be unlimited responsibility in contracts, since to my mind any responsible SME could not accept unlimited responsibility. We have done those things, so that is a start. What we are also doing is, jointly with the DTI Small Business Service, we have commissioned research to understand what are the sort of perceptions that the SMEs have of the barriers to doing business with Government. When we have got the results of that, which will be by the end of this calendar year, we can then, with the Small Business Service, identify which of those perceptions have to be addressed, because they are not actually real barriers, they are perceived barriers and, in conjunction with the SBS, we have got to do a much better job about communication to change the perception or to look at which of them are real barriers, and we have to identify what corrective action we need to take. In that, I think the linkage with the Small Business Service is a strong one. What we are doing is joint work on trying to address an important issue which is about how do we make the government market more accessible to the SME community. We have made a start, but we clearly have more to do.

  78. As it is a work in progress, can we see your findings when you have completed the work?
  (Mr Gershon) I think that is a matter for ministers.

  Kali Mountford: It is always worth a try.

  Chairman: Mr Gershon, Mr Avery, thank you very much. This is the first stage of our inquiry. You will understand that we may want to return to some of these issues. We are taking evidence from other bodies, including some of your customer departments, so we have to put you on notice that we may well want to see you again or write to you again on some of these points. Thank you very much for coming today.





 
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